Are the newest business models a sign of the future in retail banking?

Posted on April 24th, 2017

Whether you see it as a time of great opportunity or of worrying upheaval, there’s no doubt that the retail banking industry is going through a period of seismic change.

New providers are emerging all the time, often enabled by technology and focused on delivering a fresh, relevant experience for the customer. Two examples are N26 of Germany and Canada’s Koho, both of which place an emphasis on mobile banking and putting more control in the hands of customers.

Are these businesses a sign of what the future holds for retail banking, and what could that mean for established financial institutions?

Using technology to reinvent customer experience

Koho and N26 are two of many new players in the financial services industry that are positioning themselves more as technology firms than banks.

The Canadian provider focuses on delivering the front-end technology and services required to achieve the customer experience it is looking for, leaving traditional bank functions such as card issuing and money holding to Canada’s OSFI-regulated Peoples Trust.

Koho was officially launched in March 2017, after completing months of private beta testing and CA$1.3 million (US$970,000) in transactions. Its key services include mobile notifications that let customers know when money arrives in their account, when their balance is running low and when purchases are made. Algorithms integrated into the Koho app help customers categorize their spending and maintain an overview of where their money is going. The provider also offers prepaid Visa cards, P2P payments, live chat support and touch ID-based security.

Berlin-based N26 has been operating for slightly longer and announced in March that its user base had grown to more than 300,000, up from 100,000 in January 2016.

Valentine Stalf, founder and CEO of the firm, said: “January and February 2017 were the strongest months in terms of customer growth in our company’s history. We are on track to grow to a couple of million customers over the next years.”

Customers can use their phone to open an account in less than eight minutes. The N26 app allows users to monitor and control all functions related to their account and card, including ordering a new card, changing their PIN, applying for an overdraft or sending money to other N26 customers.

Is this a sign of where the industry is going?

One thing that’s clear is that technology is having an increasingly significant impact on how financial institutions function and how services are delivered to customers. That’s something that has been apparent for a number of years, but in the last few years the concept of financial services providers looking more like tech firms has really come to the fore.

This is certainly something for established banks and financial institutions to be aware of, but forward-thinking firms will be viewing it as an opportunity for collaboration and tech-driven growth. This was recently highlighted by Capgemini, which pointed out that big banks have some key advantages over emerging providers and fintechs, such as higher levels of customer trust and extensive data resources.

Speaking to City AM, Anna Scally, partner and head of KPMG’s fintech practice in Dublin, said the fallout of the financial crisis and technological advances provided the ideal environment for the growth of start-ups and disruptors in financial services.

“Of course, innovation would have happened eventually but start-ups definitely helped shape the conversation for innovation in financial services and they certainly set the pace,” she added.

Discussing some of the specific ways in which tech innovation can help established providers, Ms Scally said: “Most major banks are keenly interested in finding ways to reduce costs and see fintech and AI as a key mechanism to achieve this.”

Looking at the industry from this perspective, it’s clear that there is some very exciting change and innovation taking place. This could open up many new opportunities for businesses, in terms of how they operate and deliver the best experiences for their customers.

Written by Glenn Tom

Glenn Tom is NCR’s Senior Director of Global Solutions Marketing. In this position, he is responsible for leading global marketing efforts for all of the division’s consumer- and FI-facing solutions, including digital banking, branch, ATM hardware and software, channel management, payments & transaction processing and enterprise fraud & security. Prior to joining NCR and Digital Insight in 2008, Glenn previously held marketing and general management positions at Intuit, Morgan Stanley, Citibank and American Express. Glenn has a BA in Liberal Arts from Claremont McKenna College, a BS in Industrial Engineering from USC and an MBA from The Wharton School, University of Pennsylvania.